Deadly Attacks in Israel Drive Shoppers Out of Stores

A manager of a fashion shop in Jerusalem’s largest shopping mall hadn’t seen her store this quiet in more than a decade. Now, as then, fear of being the next victim of Israeli-Palestinian violence is keeping consumers at home.

Sales in Israel’s commercial centers fell 13 percent in October amid the deadliest violence between Israelis and Palestinians since last year’s Gaza war, according to data compiled by Retail Information Systems Ltd., an independent research company. 

“People are scared,” said Alex Zabezhinsky, chief economist at Meitav Dash Investment House Ltd., the country’s second-largest money manager. “They buy necessary items like food and drugs. Beyond that, things like clothing, cafes, restaurants and stores out along the streets, take a hit.”

Private consumption historically has been hit hard in the recurring rounds of fighting between Israelis and Palestinians. With exports sluggish, household shopping is the steady driver of Israel’s economic growth this year, the Bank of Israel said in a statement last month. The skittishness of shoppers could become a significant drag if the violence persists.

The current wave of fighting has killed 12 Israelis and about 80 Palestinians, most of them attackers. That compares with more than 1,000 Israelis and over 4,000 Palestinians killed in the five year-Palestinian uprising against Israel that began in September 2000.

Stores carrying non-essentials such as fashion accounted for more than two-thirds of last month’s decline reported by RIS. The violence was a blow to retailers who until the third quarter were enjoying a relatively good year. While the impact of the violence on private consumption will be “moderate,” that only holds true if the attacks end soon, the Bank of Israel said.

The fear permeating the country is amplified by incessant coverage of the attacks on traditional and social media, said Gideon Avrami, chief executive officer of Azrieli Group’s Malha Mall, the biggest in Jerusalem.

Security Upgraded

“The Israeli public still hasn’t gone back to normal, because the situation around the country hasn’t yet calmed down,” said Avrami. Security has been upgraded in coordination with Israeli police to “create a safe feeling and mood for our clients and visitors,” he said. 

The decline in shoppers was far more noticeable in open shopping areas, which are harder to secure, he added. 

Azrieli Group and Melisron Ltd., two of the largest mall operators in Israel, decided to act. To entice shoppers back, they began offering discount coupons, some for as little as $12. 

Even though mall operators haven’t yet seen profit drop, their business model relies on the ability of retailers to produce income, according to Sagi Stein, chief executive officer at Migdal Mutual Funds, a unit of the biggest minority shareholder of both Azrieli and Melisron.

Melisron generates all its profit from shopping centers. While that accounted for 14 percent of Azrieli’s second-quarter revenue, the company has stated it will focus on corporate real estate and sell its other assets. Melisron, which has gained 24 percent this year, fell 7.5 percent in October in Tel Aviv. Azrieli, up 16 percent this year, lost 3.3 percent.

Fox Wizel Ltd., which operates a chain of retail fashion stores in malls, sank 13 percent in October.

Bounce Back

Historically, Israel’s economy tends to bounce back quickly from these dips. Private consumption jumped almost 40 percent in the quarter following last year’s Gaza war, after falling 12 percent during the fighting, according to government data.

Still, Israeli businesses are haunted by memories of the last Palestinian uprising. The nation’s gross domestic product increased just 0.1 percent in 2001 and contracted the same amount the following year, the worst economic performance since Israel’s birth, according to the Central Bureau of Statistics.

As long as this fear persists, shoppers will stay away. Declining sales could force retailers to cut jobs, which would curb spending even more, said Zabezhinsky. If the violence continues, $12 coupons could be only the beginning.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE